Immersion Corporation
Q2 2017 Earnings Call Transcript

Published: 5 Aug 2017

[Operator:]

Good day, everyone, and welcome to the Immersion Corporation Second Quarter 2017 Earnings Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Jennifer Jarman with the Blueshirt Group. Please go ahead, ma’am.

[Jennifer Jarman:]

Thank you, Jamie. Good afternoon, and thank you for joining us today on Immersion’s second quarter 2017 conference call. This call is also being broadcast live over the web and can be accessed from the Investor Relations section of the company’s website at www.immersion.com. With me on today’s call is Vic Viegas, President and CEO; and Nancy Erba, CFO. During this call, we may make forward-looking statements, which may include projected financial results or operating metrics, business strategies, litigations, anticipated future products, anticipated market demand or opportunities and other forward-looking topics. These statements are subject to risks, uncertainties and assumptions. Accordingly, actual results could differ materially. For a listing of the risks that could cause this, please see our Form 10-Q filed with the SEC as well as the factors identified in the press release we issued today after market close. Additionally, please note that during this call, we may discuss non-GAAP financial measures. For each non-GAAP financial measure discussed, a presentation of the most directly comparable GAAP financial measure and a reconciliation of the differences between the non-GAAP financial measure discussed and the most directly comparable GAAP financial measure is available in today’s press release. With that said, I’ll turn the call over to Chief Executive Officer, Vic Viegas. Vic?

[Vic Viegas:]

Thanks, Jennifer, and thanks, everyone, for joining us this afternoon. To begin, I’d like to state that we remain resolute and focused on the execution of our long-term strategy to deliver value to shareholders and to enhance our customers’ digital interactions through the sense of touch. During the second quarter, we saw the benefits of that focus through agreements executed with new customers as well as the renewal and expansion of agreements with existing customers. This includes a number of positive customer and market announcements that I would like to highlight to you. In the mobile market, we licensed Onkyo Corporation, a leading Japanese electronics manufacturer to use Immersion’s TouchSense Premium and TouchSense Lite in their smartphones. Additionally, momentum and social media applications continues to drive strong interest in haptics. In the wearables market, we licensed Shenzhen-based Realtime Technology to embed Immersion’s TouchSense Premium solution in Realtime’s Pacewear smart wearable products. In the gaming VR and AR market, we have seen great interest in our TouchSense Force tools and are pleased with our success partnering with game developers with the Nintendo Switch platform. We’re excited to announce a multi-year IP license agreement with Mitsubishi Electric Corporation for their automotive solutions. The automotive market continues to see the value of haptics and entertainment navigation and climate controls. And in the mobile ads market, we have joined forces with leading video ad serving platform SpotX. Together, we aim to empower advertisers with high impact haptic experiences. The benefits of mobile ads with haptics were once again showcased at the Cannes Lions International Festival of Creativity. While expansion and renewals of customer agreements are our primary focus, we remain committed to the protection of our intellectual property, which we believe is in the best interest of our shareholders. Over the course of our company’s 24-year history, we’ve taken very seriously our obligation to our shareholders, customers and employees. As always, we continued to review our strategic options. Our goal is to achieve fair and appropriate value for the years of investment and innovation that have built our leading haptic patent portfolio and the expertise commensurate with that. We believe, we are on the right path. I will share more with you regarding our recent business developments, enforcement actions and outlook but first I’ll turn the call over to Nancy, to discuss the details of our second quarter 2017 financial results. Nancy?

[Nancy Erba:]

Thanks, Vic. Revenues for the June quarter were $7 million, down 11% from revenues of $7.9 million in the year-ago period, primarily the result of decreased revenue from our gaming and medical license fees, partially offset by increases from our mobility and automotive license fees. Revenues from royalties and licenses of $6.8 million were down 11% from $7.6 million in the second quarter of 2016. Of these amounts in the second quarter of 2017, variable royalties based on shipping volumes and per unit pieces totaled $5 million. And fixed payment license fees totaled $1.8 million, this compares to variable royalties of $5.6 million and fixed license fees of $2 million in the prior-year period. While revenue mix for line of business is expected to fluctuate on the quarterly basis due to seasonality patterns for the second quarter of 2017, a breakdown by line of business as a percentage of total revenues was as follows

[Vic Viegas:]

Thanks, Nancy. I would like to take a few minutes to discuss the importance of the enforcement actions we have undertaken in support of our strategic imperatives. We evaluate our strategy on an ongoing basis by assessing our financial metrics; our progress made in key markets; our success in executing to specific customer objectives; and of course, our ability to negotiate license agreements that properly value the benefits derived from access to our technology. If we are unable to successfully negotiate terms that place a fair value on our technology, we are faced with the choice of enforcement. Today, we have multiple actions in process with large OEMs. Following the resolution of these actions, we believe we will emerge stronger and the value of our technology offerings and patent portfolio will be appropriately recognized. With that, I will provide a detailed update on our current legal proceedings. We will begin with Apple. Regarding the Apple litigation

[Operator:]

Thank you, sir. [Operator Instructions] And we’ll take our first question from Josh Nichols with B. Riley & Company.

[Aman Gulani:]

Hey guys, I’m jumping in for Josh, this is Aman Gulani. My first question is when does the Samsung standstill agreement expire? And how should we think about Immersion’s strategy, if cynically, agreeable deal is not reached this year?

[Vic Viegas:]

Aman, so Samsung standstill expired on June 30 of this year, 2017. Today, we filed litigation against Samsung, we believe their products launched in 2016 and later, all require a license. And we plan to pursue that litigation vigorously.

[Aman Gulani:]

Okay. And then last question. Can you provide us with an update on the various IPR requests Apple have filed against Immersion patents in the case?

[Vic Viegas:]

Sure. We did include that in our prepared remarks. So I believe there are 14 different IPRs. And of the 14, 4 have been instituted by the Patent Trademark Office, 2 have been denied, 1 has a selected number of claims instituted, and 7 remain pending.

[Aman Gulani:]

Okay, thank you. That’s all the questions I have. I’ll turn back in the queue.

[Vic Viegas:]

Thank you.

[Operator:]

[Operator Instructions] We’ll go next to Charlie Anderson with Dougherty & Company.

[Charlie Anderson:]

Yes, thanks for taking my questions. Vic, I wanted to start with the annual guidance revision, if you could just walk us through some of the elements that took it down?

[Vic Viegas:]

Yes, sure Charlie. So the new guidance is as we said.

[Nancy Erba:]

Its $30 million to $34 million for revenue. Go ahead?

[Vic Viegas:]

So and I was going to say – one of the items was we had revenue in the full year for Sony, which we have now taken out and we have also made some other adjustments. The net of that really gets us to a point where we feel like we’re at our current run rate, which we feel very comfortable with.

[Charlie Anderson:]

Got it. And then looks like no change roughly to OpEx for the year? Am I reading that right?

[Nancy Erba:]

Actually, OpEx will be down excluding litigation. So litigation, we updated to be $20 million to $24 million. And then our OpEx guidance of $55 million to $58 million excludes that litigation spend. Our last guidance that we gave at the end of 2016 was $60 million to $63 million. So we’ve been really focused on how we spend, timing of hires, being very prudent to make sure that we’re managing that operating expense as closely as possible.

[Charlie Anderson:]

Got it. And then my follow-up question relates to the Samsung and Motorola litigations. Maybe just talk a little bit about choice of venue there? And then also, maybe cost of litigation compared to what we’ve seen so far in the ITC case?

[Vic Viegas:]

Sure. While we’re quite familiar and I think Samsung and Motorola are familiar with the patents. They have been licensed and have been paying us for many years on the same patent. So we have litigated these patents and many of these patents have also been reexamined and reissued at the Patent Office. And so we have selected in Samsung’s case, the Eastern District of Texas and in the Motorola’s case, we’ve selected Delaware, District Court of Delaware. Again, we are familiar with the District Court process, the firm we’re using has litigated these patents on our behalf in the past. So we’re quite comfortable with these actions. These activities because we’re so familiar with the process and the patents and the venues. We think that the cost and the time will be substantially less than what they have been in the ITC.

[Charlie Anderson:]

And is it a full Immersion cost or is there a contingency element? With these 2 cases?

[Vic Viegas:]

We aren’t going to be able to say for sure exactly how we’re funding these existing cases. But we do have available to us various contingent forms of financing litigation. So we keep that option available. But at this stage, we’re – its part of our litigation strategy and at this stage, I don’t want to detail any other specifics.

[Charlie Anderson:]

Okay, fair enough. Thanks, guys.

[Vic Viegas:]

Thanks, Charlie.

[Operator:]

I will conclude our question-and-answer session. I’d like to turn the call back to management for any additional or closing remarks.

[Vic Viegas:]

Jamie, if it’s okay with you, maybe we’ll hold for just a minute and see if anyone else has any final questions?

[Operator:]

Absolutely. [Operator Instructions]

[Vic Viegas:]

Well, Jamie, I guess there are no other questions then I want to thank everyone for participating today. And we do look forward to updating you again on our next call. Thank you and have a great day.

[Operator:]

Thank you, sir. Again, that does conclude today’s conference. We appreciate everyone’s participation.